On 14 February 2019, the European Parliament voted to endorse the first ever EU-wide tool for screening foreign direct investment (FDI) on the grounds of security and public order. The vote brings the EU one step closer to putting in place a framework allowing EU Member States to call for the vetting of investments in certain industries from outside the EU. It follows on from a political agreement reached in November 2018 by the EU institutions to implement the proposed framework, which we previously reported on here.

The framework will apply to FDI in a wide range of industries including tech/biotech, media, food security, health, finance and data processing (as well as traditionally sensitive sectors such as defence, communications and utilities), where the Commission or Member States consider that the FDI may present a risk to national security or public order. The proposals also seek to establish an EU-wide cooperation and information-sharing framework, with the Commission and Member States having the power to comment on the screening of FDI in other Member States. Member States and the Commission will be able to influence FDI into the bloc, through procedures such as one-third of Member States requesting extra scrutiny of FDI or the Commission issuing an advisory opinion. However, the final decision on the FDI will remain with the country concerned.

In a sign of the wide political support for the framework, the vote passed by 500 votes for, with only 49 against and 56 abstentions. The Council is expected to formally endorse the framework on 5 March and the regulation will enter into effect 18 months after its publication in the Official Journal of the European Union. All FDI transactions concluded after the new rules come into effect may be scrutinised by the Commission or other Member States up to 15 months after the investment is made.

The strong political appetite for the framework comes alongside the Commission finalising the publication of a detailed analysis of FDI in the EU and a Commission coordinated group of Member States working on identifying concerns and solutions on FDI. While the EU says it remains open to FDI, the scrutiny over its role in the EU is set to continue.

We are running a seminar on the topic of FDI controls on 12 March 2019, with keynote speakers from BEIS and the European Commission – further details here.